Remington Outdoor Company Bankruptcy Update

What Cerberus put together to eventually form Remington Outdoor Company aka Freedom Group, the US Bankruptcy Court for Northern Alabama is taking apart. A court filing today has the results of the auction for the various components of the company. It was first reported by Dan Zimmerman at TTAG.

Earlier in September, I reported that JJE Capital was the stalking horse bidder for Remington’s ammunition business. That was to set the floor. The final bids were released today. These will be subject to approval of the court in a hearing to be held on Tuesday, September 29th.

From the Notice filed with the Bankruptcy Court today:

Vista Outdoor, Inc. as the Successful Bidder pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit A with respect to the Lonoke Ammunitions Business and certain IP assets; and SIG Sauer, Inc. as the Backup Bidder thereto pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit B with respect to the Lonoke Ammunitions Business;
Roundhill Group, LLC as the Successful Bidder pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit C with respect to the non-Marlin Firearms Business; and Huntsman Holdings, LLC and Century Arms, Inc. as the Backup Bidders thereto pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit D with respect to certain Firearms Business IP assets and Exhibit E with respect to certain non-Marlin Firearms Business inventory, respectively;
Sierra Bullets, L.L.C. as the Successful Bidder pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit F with respect to the Barnes Ammunitions Business; and Barnes Acquisition LLC as the Backup Bidder thereto pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit G with respect to the Barnes Ammunitions Business;
Sturm, Ruger & Company, Inc. as the Successful Bidder pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit H with respect to the Marlin Firearms Business; and Long Range Acquisition LLC as the Backup Bidder thereto pursuant to the terms of the Asset Purchase Agreement attached hereto as Exhibit I with respect to the Marlin Firearms Business;
JJE Capital Holdings, LLC as the Successful Bidder with respect to the DPMS, H&R, Stormlake, AAC, and Parker brands;
Franklin Armory Holdings, Inc., or its designated assignee, as the Successful Bidder with respect to the Bushmaster brand and certain related assets; and
Sportsman’s Warehouse, Inc. as the Successful Bidder with respect to the Tapco brand.

If these bids are approved, Vista Outdoor will become an even larger player in the civilian ammunition market with the addition of Remington’s ammunition factory in Arkansas.

The other big story is that Ruger will be adding the Marlin lever action lineup of rifles to its product line. It is unknown if they will keep the old name or market them under the Ruger name.

JJE Capital is the owner of Palmetto State Armory among other companies. DPMS will be a good fit for them as will H&R in the budget category. I’m not sure of their intention for Parker which makes the reproduction Parker shotguns nor what they plan to do with suppressor maker AAC or barrel maker Stormlake.

Franklin Armory getting Bushmaster will be a good fit for them. Likewise, Sierra Bullets adding Barnes Bullets to their lineup makes sense.

Roundhill Group, LLC is a property management group out of Virginia according to a story out of New York. I’m not sure if that is the correct Roundhill as there are a number of companies by that name with various spellings. Nonetheless, they will be getting the non-Marlin firearms business which would include Remington itself and presumably Dakota Arms. The story indicates a bit of unease in Ilion, NY where the Remington factory is the largest employer in Herkimer County. The backup bidder for this part of the assets includes Century Arms. I would hate to see what they would do with Remington.

Finally, Sportsman’s Warehouse is getting Tapco. I presume they intend for this to be used to provide accessories to be sold in their chain of stores.

The Wall Street Journal does bring up an interesting point in their report on the breakup of Remington into pieces. What happens now with the Connecticut lawsuit?

The Covid-19 pandemic and civil unrest have Americans stocking up on guns and ammunition, but Remington said it was short of funds, despite having erased hundreds of millions of dollars in debt in a 2018 bankruptcy.

The company is facing a lawsuit over its marketing of the Bushmaster rifle, which was used in the December 2012 killing of 20 children and six adult school staffers at Sandy Hook Elementary School in Newtown, Conn.

The 2020 bankruptcy halted a lawsuit brought by the families of some of the Sandy Hook victims, which had been preserved in the first pass through chapter 11.

Remington hasn’t said what its drive to throw its assets on the bankruptcy auction block would mean for the Sandy Hook lawsuit or for company retirees who crowded into a session with bankruptcy administrators, asking what would become of their benefits.

Sierra Bullets Bought By Clarus Corporation

Sierra Bullets of Sedalia, Missouri has been acquired by Clarus Corporation. The announcement was made on Tuesday. This makes the second bullet manufacturer to be owned by a publicly traded company with Speer being the other. According to the release below, Clarus paid $79 million for Sierra. Clarus plan to invest in expanding Sierra’s marketing efforts, distribution, and product development. All the senior leadership of Sierra will remain in place.

Black Diamond climbing equipment is the other major brand owned by Clarus Corporation. If I am not mistaken, Black Diamond was founded by Yvon Chouinard and spun off from Patagonia.

This is an interesting combination. The only synergies that readily come to mind involve the engineering behind metal coatings and cladding.

From the release (in part):

SALT LAKE CITY, Aug. 22, 2017 (GLOBE NEWSWIRE) — Clarus Corporation (CLAR) (“Clarus” or the “Company”), a diversified holding company which seeks opportunities to acquire and grow businesses that can generate attractive shareholder returns, has completed the acquisition of Sierra Bullets, L.L.C. (“Sierra”) for $79 million, subject to a post-closing working capital adjustment. The transaction is expected to be immediately accretive to Clarus’ earnings per share.

Since 1947, Sierra has been dedicated to manufacturing the highest-quality, most accurate bullets in the world. From local and international shooting competitions to sport and hunting, Sierra offers best-in-class accuracy and precision that hunting and sport shooting enthusiasts have come to depend on. This performance is born from a proprietary manufacturing process that enables the achievement of the tightest tolerances in the industry.

Sierra’s products have cultivated a significant consumer following recognized by its iconic “green box” packaging and include globally recognized brands such as Sierra MatchKing, Sierra GameKing, and Sierra BlitzKing…

“The team at Sierra has continued building on a 70-year legacy dedicated to the highest-level of precision in design, world-class manufacturing and quality control,” said Warren B. Kanders, executive chairman of Clarus. “These attributes have cultivated a diverse customer base of enthusiasts and industry OEMs that drive high recurring revenue and strong cash flow, which we expect to maximize through the utilization of our net operating loss carryforwards.”

Clarus expects to leverage its various strategic and financial resources to accelerate Sierra’s growth. This includes investments to enhance marketing and digital capabilities, improve distribution, forge new customer accounts, and develop new products.

Sierra is led by a seasoned senior management team with decades of combined manufacturing and industry expertise that is dedicated to the long-term growth of the brand. All senior management are expected to remain with Sierra under Clarus’ ownership.

Sierra’s President Pat Daly commented: “Our team takes great pride in developing and manufacturing the most precise and accurate bullets in the world. This is supported by our deep institutional knowledge of highly-specialized manufacturing processes that have produced leading products and created a significant competitive advantage. As the only pure-play bullet brand, it was important for us to partner with a team that shares our values and commitment to excellence, and we are excited to join the Clarus family. I look forward to staying on to continue driving our brand growth.”…

Kanders concluded: “We remain committed to seeking to acquire additional companies in industries potentially unrelated to outdoor that satisfy our investment criteria as we found in Sierra. In addition, the minimal leverage incorporated in this transaction and Sierra’s free cash flow dynamics are expected to provide capacity for future acquisitions utilizing our structure.”

Sierra Bullets On The Shutdown Of The Herculaneum MO Lead Smelter

As has been reported in many places, the Doe Run Company will be closing their lead smelting plant in Herculaneum, Missouri. The closure of the only primary lead smelter or a smelting plant that produces lead from lead ore is due to the EPA’s ten-fold increase in air standards for lead.

The NRA-ILA provided a quick summary:

In December, the final primary lead smelter in the United States will close. The lead smelter, located in Herculaneum, Missouri, and owned and operated by the Doe Run Company, has existed in the same location since 1892.

The Herculaneum smelter is currently the only smelter in the United States which can produce lead bullion from raw lead ore that is mined nearby in Missouri’s extensive lead deposits, giving the smelter its “primary” designation. The lead bullion produced in Herculaneum is then sold to lead product producers, including ammunition manufactures for use in conventional ammunition components such as projectiles, projectile cores, and primers. Several “secondary” smelters, where lead is recycled from products such as lead acid batteries or spent ammunition components, still operate in the United States.

Doe Run made significant efforts to reduce lead emissions from the smelter, but in 2008 the federal Environmental Protection Agency issued new National Ambient Air Quality Standards for lead that were 10 times tighter than the previous standard. Given the new lead air quality standard, Doe Run made the decision to close the Herculaneum smelter.

Most ammunition uses lead as one of its primary components whether in bullets or lead shot. The question is whether they use recycled lead or lead that comes directly from ore.

Sierra Bullets of Sedalia, Missouri is the first bullet manufacturer that I know of that has addressed the question of whether the plant closure will shut down their supply of lead. The answer is a qualified no.

The main question asked is “Will this shut down your supply of lead.” The answer to that is no. First, Sierra buys lead from several different vendors to maintain constant supply. Second, this facility only smelts primary lead or lead ore. This is lead ore that has just been brought out of the earth. Sierra uses no primary lead at all and never has, so we use nothing directly from this facility. The lead we buy from Doe Run comes from their recycling facility in Boss, MO that is about 90 miles away from the smelter that is closing.

The facility we buy from is still going strong and delivering to us as scheduled. The lead from this facility is from recycled lead, mostly coming from car batteries. This is a continuing “in and out” cycle for them and the smelter closing will not affect this facility.

Our supply should not be in jeopardy and we do not anticipate any changes in our supply chain at this time. Could the lack of primary lead create a little more demand for recycled lead? Sure, but how much is unknown. Could this increase in demand also create an increase in price? Sure, but again, by how much is unknown at this time.

There are many other primary lead smelters in the world and so the flow of primary lead will not be shut off. Where there is a need for primary lead, I am sure there will be a salesman more than happy to pick up the business.

If you read their answer closely, they are saying their source of lead seems to be secure. However, the demand for recycled lead will undoubtedly begin to rise as battery manufacturers may increase their consumption of recycled lead. The increase in hybrid and electric cars will also increase the demand for lead-acid batteries.

Ammo prices have risen with demand and I expect they will continue to rise from both ammo demand and demand for the raw materials such as lead. Where it will end, I just don’t know.